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Course Outline
Session 1 – Structured Products
- Defining structured products.
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Categories of structured products
- Asset-backed securities.
- Collateralized debt obligations.
- Collateralized mortgage obligations.
- The function of the special purpose vehicle.
- Approaches to pricing structured products.
- Identification of critical risks.
- Accounting treatments for structured products.
- Detailed pricing mechanisms for structured products.
Session 2: Interest Rate Structures
- Embedded options and swaps.
- Reverse floaters.
- Leveraged swap-linked notes.
- Bonds tied to indices other than LIBOR.
- Extendible and cancellable swaps.
- Embedded swaptions.
Session 3 – Options Contracts
- Fundamentals of options.
- Key options terminology.
- Exchange-traded versus Over-the-Counter (OTC) instruments.
- Understanding option premiums.
- Confirmation and settlement procedures.
- The role of volatility.
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Option pricing techniques –
- The Binomial model.
- The Black-Scholes model.
- Alternative methodologies.
- The significance of the yield curve.
Session 4 – Swaps Contracts
- Introduction to swaps.
- Definitions of swap instruments.
- Quality spread differential (QSD).
- Interest rate swaps.
- Currency swaps.
- Pricing interest rate swaps.
- Swap valuation methods.
- Model risk and the critical nature of pricing feeds.
- Confirmation and settlement processes.
- Managing counterparty credit risk.
- Collateral and collateral management practices.
Session 5 – Introduction to Derivatives
- Defining derivatives.
- Concerns surrounding derivatives in the market.
- Core concepts in derivative theory.
- Arbitrage and the original intent of derivatives – achieving mutual coincidence of wants.
- Advantages and applications of derivatives.
- Strategies for hedging and trading.
Session 6 – Foreign Exchange
- Distinction between banking book and trading book positions.
- Market conventions in foreign exchange.
- The specific language of foreign exchange trading.
- The workflow of foreign exchange trading.
- Electronic versus telephone trading methods.
- Controls within the dealing room.
- Common currency terms.
Session 7 – Forward Transactions
- Introduction to forward contracts.
- Objectives and purposes of forward contracts.
- Pricing forward contracts and the centrality of LIBOR.
- Documentation standards for forward contracts.
- Overview of the International Swaps and Derivatives Association (ISDA).
- Confirming and settling forward contracts.
Session 8 – Futures Contracts
- Introduction to futures contracts.
- The function of the futures exchange.
- Characteristics of futures contracts.
- The role of futures in trading strategies.
- Pricing mechanisms for futures contracts.
- Utilizing futures for hedging purposes.
- The importance of margin accounting.
- Confirmation and settlement procedures.
Session 9: Equity Swaps
- Objectives of fund management.
- Applying swaps to equity price indices.
- Illustrative cash flows for an equity swap.
- Total return swaps and other credit derivatives.
Session 10 – Practical Challenges and Failures
- Scenario modeling and its application to derivatives.
- Case study: Bankers Trust.
- Case study: Barings.
- Case study: Allfirst.
- Case study: Long-Term Capital Management (LTCM).
- Case study: Enron.
Session 11 – Introduction to Advanced Topics
- Managing interest rate risk.
- Overview of collateralized instruments.
- Counterparty credit risk in derivatives.
- Legal risks associated with derivatives.
- Value at Risk (VaR) and Exposure at Default (EAD).
- Loss Given Default (LGD) and Probability of Default (PD).
- Stress testing and liquidity risk management.
- Advanced scenario modeling.
- The impact of international accounting standards, specifically IAS 39 and IFRS 7.
- Asset recognition and derecognition principles.
21 Hours
